tax changes hungary 2012

Coming up in this episode of Hungary’s online radio show (and podcast)… “Business as Usual (Changes in Hungary).”

In the second of a series of Budacast episodes, Uncle Drew once again speaks to Barbara Ürögdi of Helpers Hungary who tells us that doing business in Hungary is always about changes, but last year’s wave of new legislation could rock your boat.

These days in Hungary, one might feel like they’re lost in the woods given all of the legal changes, protests, and economic turmoil. Lately, Drew says it can almost be a bit overwhelming if one pays too much attention to news about Hungary.

Not to worry – Barbara has some more tips for those living and working in Hungary, to help them sift through the facts and fiction. Hopefully she addresses any concerns listeners might have about what’s been going on.

First, she speaks about the kinds of clients that Helpers has to later address some of their specific concerns.

She says the basic idea of Helpers is to provide core services: to provide business consultancy and project management; and relocation – basically for small business owners, foreigners who do work or business in Hungary.

“In this, we are quite unique on the Hungarian market,” she explains, “because the services we provide are only typically available for big businesses, through consulting companies and big relocation companies – things like financial consulting, business planning, market research, partner searches, legal and accounting advice and also practical project management.”

Barbara continues: “I think what’s important is that our core client base is made up of small- and medium-sized businesses that are owned and run by foreigners, and that’s a very niche market because they typically have to rely on consultants and the local experts to make sense of the regulations and to run their businesses, not only compliantly but also successfully. But because of the size of their business, they generally do not have the same concerns as corporations have.

“Big consulting companies and also the media and government communication tends to focus on the interests of big business, so most of the stuff that you will read in the media does not directly concern you if you’re running a small business but finding out what does and doesn’t concern you is tricky business,” she explains.

“Legislation tends to be written in Hungarian and is very very long and basically incomprehensible to anyone,” Ürögdi quips, “so you have to rely on experts. And you get some of your information from the media, but that’s pretty much your only source of information, especially if you’re a foreigner. So what we try to do is provide targeted assistance and information, specifically for small- and medium-sized businesses – that’s why we’re here having this conversation.”

Helpers Hungary has actually reacted in a very targeted way to the tidal wave of changes in Hungary in late 2011 and early 2012.

“Two things kind of coincided over the last few months,” she explains. “One of them was expected: we knew that both corporate legislation and the tax regime are going to change from 2012.”

She says that in terms of legislation, things always change in Hungary, so that was no surprise.

“Taxes change every few months; it’s very difficult to keep track, but not only that – it’s also very difficult to plan ahead, which is essential for business,” says Ürögdi in terms of doing business in Hungary. “So this is something we’ve been preparing for for a while.

“We knew that there was a proposal on the table which would be voted on just before Christmas, for example, which affected, more or less, every piece of law that has to do with owning, running or transferring a company. What we didn’t know is that there would also be a modification, which would be passed on December 30th. So then we basically spent the first week of January sifting through those modifications and trying to figure out what actually changed and what didn’t.”

According to Barbara, Helpers also knew that the tax regime was going to change.

“Most of that was public, but until something is actually set down in law, it can always change at the last minute in Hungary. So it’s been a few months of trying to figure out what’s going to happen and trying to prepare our clients for it.

“Interestingly, that has coincided with the whole political and economic turmoil that kind of happened in Hungary over the last few months – we did not plan for that. We also didn’t plan for the inflation that happened. So there’s a lot of stuff that we’ve had to do on the fly and keep in contact with both our partners and advisors to make sure that we are as thoroughly prepared as possible.

She says that at the moment there are two concrete steps that are being taken by Helpers.

“One is that we have prepared a document, which is very short – two pages – and it’s literally the most relevant bits and pieces from the new corporate law and the new tax law that are specifically interesting for small businesses.

“Just to give you an idea, the new corporate law is 300 pages and the modifications which were passed are another 300. It’s lots and lots of stuff, so nobody actually reads that. But our lawyer show specializes in assisting small businesses has provided us with 10-12 pieces of information that are directly relevant, so we’ve compiled this all in a document. It’s on our website and accessible to anyone for free, so it’s not just for our clients.”

As a follow up to that, Helpers Hungary has started a blog.

Barbara explains: “We’re going to have about 1-2 entries every week, detailing the new experiences that we have with the new legislation in Hungary, since a lot of it is currently just information but we don’t actually see how it’s going to work in practice.”

She said the blog will also include reflections on the economic and political situation in general.

Ürögdi gave one example of some information in the document compiled by Helpers.

“One of the things that affects our business directly is that the procedure for incorporating companies in Hungary has changed completely and is actually still in the process of changing. One of the services that we provide, which is pretty much at the core of our service offering is setting up companies and launching them – starting them in their operations, for foreigners.

“Until last year this was pretty much the simplest process in all of Europe, and one of the cheapest, because it was basically a ‘one-stop shop’, all filed electronically and basically in a day or two you’d end up with a company with a new VAT number and you’d be ready to go. You can open a bank account and trading the next day.”

She says now a new step has been introduced for registering companies in Hungary.

“The trade registry actually has to request a VAT number from the tax authority before actually registering the company, so technically if the tax authority does not approve of the owners or the CEOs it could reject the application and basically the trade registry would not be allowed to register the company.

“We informed our clients about this last year, because we knew that this was coming; what we didn’t know was how this was going to work out in practice. So far we have found that in the case of foreigners it’s actually quite simple, because what the authority looks for is previous tax liability, and if there isn’t any, for example in the case of a foreigner who’s never done business in Hungary, the issue of the tax number is basically automatic.”

According to her, this is one aspect that might actually disadvantage Hungarian business owners that have a long tax history in Hungary.

Barbara continues, “In the document we do outline the procedure, but we also include reflections on how this is going to affect clients’ businesses. In this case, for example, it might end up just being a formality for them – something that they should be aware of, because there is a hypothetical possibility that it could hinder the registration, but in the end it seems that in practical terms it’s not going to hurt them.

“So we’ve tried to keep it sort of practical, rather than translating the law we try to publish our experiences and kind of warn clients about realistic pitfalls and not burden them with too much legislation.

She points out that the Hungarian business environment gets a bad rap.

“It’s true that in some things it’s quite harsh. Most of the time that has to do with employment: taxes on employment including income taxes, social security, pension payments and all those are quite high. That is true, although I have to say that there are places where it’s higher and where it’s lower, but our corporate tax is one of the lowest – it’s on the same level as Cyprus, at 10%. Cyprus is well known as a tax haven. Hungarian dividend tax is at 16% which is also not so horrible.

“There are a lot of items in our tax system which are favorable and some which are not, but that’s kind of how it is to do business, you kind of make your way through the good and the bad.”

Of the Helpers document, she concludes: “In the end we kind of try to keep it realistic and focus on stuff that can actually help our clients get started and focus on their business rather than spending a lot of time working on legislation and worrying about tax laws.”

She says if one is well prepared and well informed, it’s possible to do good business in Hungary.

“I think a lot of the time people run into walls, because they don’t know what to expect in advance, and then they are shocked and surprised when their accountant tells them that they have to pay this or that thing, but technically that is something that you can plan for. And if you plan for it, if you have a solid business plan and financial plan, then you won’t have those kind of surprises.”